How tokenization can reinvent traditional markets

March 6, 2019

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There is no doubt about it: blockchain technology and cryptocurrencies are going mainstream and quickly getting traction despite some bumps in the road. This technology opens doors to people and changes the landscape the way e-commerce once transformed our everyday lives.

Jeff Bezos, who founded Amazon in 1994, is now the world’s richest person. He introduced a concept that changed the way we see things. Similarly, tokenization has the ability to completely reinvent traditional markets, making them more accessible and secure.

First things first: what is tokenization?

Tokenization is, simply put, the process of taking any sort of sensitive information such as credit card information, bank account numbers and other data and jumbling the numbers randomly to get a unique sequence (an indecipherable token), for safe and secure storage. Now, I realize I said simply there, so let’s break it down.

I have a key to my house, and every month I lose my key and have to go to the one person left in the world who can make a copy. Rather than leave my loved ones at risk for a break-in, I invest in an electronic code for my door.

If you’re still with me, essentially, tokenization is taking traditional “keys” for personal information, and putting them into a code lock.

Where can tokenization benefit investment?

Tokenized security investments are a great way to provide liquidity and create assets open to a new class of investors. It includes those who have the nose for the latest investment trends but have limited financial means to tap into that opportunity.

There are many different use cases for this new type of investment, including art, real estate and even a whole new asset class – tokenized VC portfolios.

Before tokenization of assets came along, investing in both art and real estate was a surefire way for investors to profit. With art, the price almost always rises and in real estate it could fluctuate dramatically to eventually rise again. Both art and real estate investment have traditionally been open exclusively to affluent individuals. This has perpetuated their wealth and left the rest on the sidelines of investing.

Tokenization has the potential to open these assets and welcome a new type of investor to this upper echelon: from individuals traders to amateur blockchain investors, from technology aficionados to your grandmother. Its potential has gone way beyond art or real estate. You can now tokenize your future.

Art

In the art world prices are constantly climbing and masterpieces are auctioned off at sky-high prices. In 2010 a Picasso was sold for more than $100 million. Its value will likely continue to increase as time goes by. But few can profit from it. Art collectors are among the select few who can do that and becoming one of them has not been simple. Most people could not even dream of owning a major piece of art.

Tokenizing art has the ability to change this though. In 2018 the famed auction house Christie’s in New York sold its first piece of art paid for entirely via blockchain. The piece was sold through Artory, a blockchain-secured registry using decentralized ledgers to allow investors to anonymously buy art while still tracking histories, provenance and more.

Tokenizing art allows people to own a part of a masterpiece using security tokens. Imagine taking a $10 million Monet painting, and splitting it into an infinite amount of virtual pieces without actually tearing it apart. Buyers can purchase many pieces of the painting, similarly to how they would purchase company shares on a traditional stock exchange. This allows virtually anybody to invest small amounts of money into something traditionally out of reach for most and to get substantial returns. This opens up a previously inaccessible asset class.

While art and real estate are the more obvious examples of asset tokenization, there are other, more innovative and secure ways to tokenize.

Startups

Tokenization can be a gateway to both being a part of something bigger and to making financial gains. What better way to do it than to invest into promising startups that are on their way to become the new Ubers and Reddits of the world?

But just like art, startups are also hard to invest in unless you have hundreds of thousands or many millions of dollars at your fingertips. Traditionally venture capital funds do this type of investing. They, too, face a challenge by having to wait five to 10 or often more years to see a company go public or get acquired by a larger company. A VC fund profits after a successful exit but the capital gets locked in for years.

There is a way to solve both problems through tokenization. When a venture capital fund’s startup portfolio gets tokenized, potential buyers receive a piece of what could be the next Airbnb. This list of new buyers doesn’t have to be limited to professional investors and wealthy individuals, it can and should include virtually anybody.

If you have a platform which creates a secondary market for these tokens, you can democratize investing into startups. A platform like that will enable everybody to get access to future technologies, from self-driving cars and space exploration to artificial intelligence and blockchain.

We have been working on creating a platform exactly like this. At VNX, we want to not only help people get access to tangible, reliable and transparent assets but also to unlock liquidity for VCs who wait years to see their efforts come to fruition.

We really believe in creating a community, a trusted ecosystem for technology lovers of all calibers, where everybody wins.

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